Borrowing to invest turns a stock's move into a bigger move in your own money, in both directions, and adds a lender with the right to sell your holdings when the numbers turn against you. That is the whole trade-off of a margin account, and the rules that govern it are specific: a federal cap on the initial loan, a FINRA floor on the equity you must keep, house requirements on top, and since June 2026 a new intraday standard in place of the pattern day trader rule. This guide sets out each rule, prices the interest and works through what a 30% drop does to a leveraged position. Margin is a higher-risk tool, and the risks come first throughout. For the wider basics, see the stocks hub.
How does a margin account work?
A margin account is a brokerage account in which the firm lends you money to buy securities, using the securities and cash in the account as collateral for the loan. The part of a purchase you pay yourself is your margin, or equity; the rest is a loan that accrues interest until you repay it, usually by selling or depositing cash.
Three rules set the size of the loan. The Federal Reserve's Regulation T requires initial margin of 50% (eCFR (Federal Reserve Board), as of Nov 2, 2026) of the purchase price when you buy a margin equity security, and the firm can lend the rest. FINRA Rule 4210 requires equity of at least $2,000 before you can borrow at all. And once you hold the position, your equity must stay above the maintenance requirement: 25% of the current market value of margin securities held long under FINRA's rule, or the firm's higher house level. Under Regulation T you have one payment period, currently three business days from the trade date, to meet the initial requirement.
A margin account is also what lets you sell short and use many options strategies, which is why short selling explained and options basics start from the same rules. Before the firm opens one, FINRA Rule 2264 requires it to give you a margin disclosure statement listing the risks, and it repeats the core warnings every year. FINRA notes that some firms make margin the default account type, so how to choose a brokerage account is worth reading before you sign.
The loan also changes what the firm may do with your shares. While you owe it money, FINRA says a firm can generally use securities worth up to 140% of your debit balance, pledging them as collateral or lending them to short sellers. The permission is usually a standard term of the margin agreement.
What are the margin requirements?
The legal minimums are 50% initial margin under Regulation T and 25% maintenance under FINRA rules, and each firm can add stricter house requirements on top.
| Requirement | Set by | Level | When it applies |
|---|---|---|---|
| Initial margin on stock purchases | Federal Reserve, Regulation T | 50% of the purchase price | Each new purchase |
| Minimum equity to borrow | FINRA Rule 4210(b) | $2,000, or the full cost if a purchase is smaller | Before any margin loan |
| Maintenance on stock you own | FINRA Rule 4210(c) | 25% of current market value | At all times; under the new intraday standard, throughout the trading day |
| Maintenance on stock sold short, priced $5 or more | FINRA Rule 4210(c) | $5 a share or 30% of market value, whichever is greater | While the short is open |
| Maintenance on stock sold short, priced under $5 | FINRA Rule 4210(c) | $2.50 a share or 100% of market value, whichever is greater | While the short is open |
| Initial margin on a short sale | Federal Reserve, Regulation T | 150% of the stock's value: the sale proceeds plus 50% | Each new short sale |
| Securities that are not margin-eligible | FINRA Rule 4210(c) | 100% | You cannot borrow against them |
| House requirements | Each firm | Higher, such as 30% or 40%, and more for volatile or concentrated holdings | Can change at any time without advance notice |
FINRA's own examples put house maintenance at 30% or even 40%, and its 2021 guidance told firms to weigh volatility, concentrated positions, trading volume and company size when setting house requirements. Rule 4210 also demands substantial additional margin for securities subject to unusually rapid or violent price changes. A higher requirement means a smaller fall triggers a call, and the trigger price can be worked out in advance:
For a stock bought at $100 with 50% initial margin, the call price is $100 × 0.50 ÷ 0.75 = $66.67 at 25% maintenance, $71.43 at 30% and $83.33 at 40%. Under a 40% house rule, a 16.7% fall is enough for a call.
How much does margin interest cost?
Margin interest is charged on the loan balance every day it is outstanding, so the cost depends on the rate, the amount borrowed and how long you hold the position. Investor.gov puts it bluntly: the money is not free, the interest directly reduces your return, and rates can vary substantially between firms. Your firm must disclose the rate and how it computes interest in writing, then show the charges on periodic statements. Some firms also net cash in a linked cash account against the loan, which cuts the interest bill.
Worked example: What a $20,000 margin loan costs
The rates are illustrative; check your firm's published schedule.
| At 6% a year | At 11% a year | |
|---|---|---|
| Interest per day ($20,000 × rate ÷ 365) | $3.29 | $6.03 |
| Interest for 182 days | $598 | $1,097 |
| Interest for a full year | $1,200 | $2,200 |
| Gain a $40,000 position needs in a year just to cover it | 3.0% | 5.5% |
If the interest is added to the loan rather than paid, the balance grows, your equity shrinks a little each month, and the call price creeps upward even when the stock does not move.
Interest on money borrowed to buy taxable investments may be deductible as investment interest, but only as an itemized deduction and only up to your net investment income, according to IRS Topic 505. Tax rules change, so a tax professional can say whether it applies to you.
What does a 30% drop do to a margin position?
A 30% fall in a stock bought with 50% margin wipes out 60% of your own money and, under a 30% or 40% house rule, triggers a margin call. The table follows an investor who deposits $20,000 and buys 400 shares at $100, $40,000 of stock with a $20,000 loan. Returns are on the $20,000 deposit, the last two columns show the call under FINRA's 25% minimum and a 40% house rule, and interest is left out to keep the arithmetic clear.
| Price | Move | Holding value | Your equity | Equity % | Your return | Return without margin | Call at 25% | Call at 40% |
|---|---|---|---|---|---|---|---|---|
| $130 | +30% | $52,000 | $32,000 | 61.5% | +60% | +30% | None | None |
| $100 | 0% | $40,000 | $20,000 | 50.0% | 0% | 0% | None | None |
| $90 | −10% | $36,000 | $16,000 | 44.4% | −20% | −10% | None | None |
| $80 | −20% | $32,000 | $12,000 | 37.5% | −40% | −20% | None | $800 |
| $70 | −30% | $28,000 | $8,000 | 28.6% | −60% | −30% | None | $3,200 |
| $60 | −40% | $24,000 | $4,000 | 16.7% | −80% | −40% | $2,000 | $5,600 |
| $50 | −50% | $20,000 | $0 | 0% | −100% | −50% | Account wiped out | Account wiped out |
| $40 | −60% | $16,000 | −$4,000 | Negative | −120% | −60% | You owe $4,000 | You owe $4,000 |
Worked example: Meeting the call after the 30% fall
At $70 a share, the account holds $28,000 of stock against the $20,000 loan, so equity is $8,000.
- FINRA's 25% minimum: 0.25 × $28,000 = $7,000 required. Equity of $8,000 clears it with $1,000 to spare.
- A 30% house rule: 0.30 × $28,000 = $8,400 required, a call of $400.
- A 40% house rule: 0.40 × $28,000 = $11,200 required, a call of $3,200.
Under the 40% rule, FINRA's formulas give three ways to meet the $3,200 call:
- Deposit $3,200 of cash.
- Deposit other margin-eligible stock worth $3,200 ÷ (1 − 0.40) = $5,333.
- Sell $3,200 ÷ 0.40 = $8,000 of stock, about 115 shares. The sale repays $8,000 of the loan, leaving $20,000 of stock, a $12,000 loan and $8,000 of equity, exactly 40%.
Selling locks in the loss: the 115 shares bought for $11,500 raise about $8,050.
The last two rows are the ones the margin disclosure statement warns about. Below $50 the stock is worth less than the loan, and the shortfall is a debt you owe the firm plus interest. A stock rarely drifts there in an orderly way: an overnight gap on bad news can jump straight past every call level, and as stock order types shows, a stop order cannot guarantee an exit price in a gap.
What triggers a margin call, and what happens next?
A margin call comes when trades leave too little equity, when your holdings fall in value, or when the firm raises its house requirement, even if you did nothing. FINRA lists those three triggers, and the third surprises people most: a firm may raise requirements on a stock whose company is bankrupt or delisted, or whose price is swinging widely, and the change can take effect at once.
What happens next is set out in the disclosure every margin customer receives under FINRA Rule 2264:
- The firm can sell your securities, in any of your accounts with it, to cover a shortfall, and you remain responsible for anything still owed after the sale.
- It does not have to contact you first. Even if it gives you a deadline, it can sell before that deadline to protect itself.
- You are not entitled to choose which securities are sold.
- The firm can raise its house requirements at any time without advance written notice.
- You have no right to an extension of time to meet a call.
FINRA adds that a firm can sell enough to pay off the entire loan, not just the amount of the call. Rule 4210 sets an outer limit: margin due must be obtained as promptly as possible and in any event within 15 business days, unless FINRA grants more time. As the disclosure makes clear, a firm can act far sooner.
What happened to the pattern day trader rule?
FINRA replaced the pattern day trader rule with intraday margin standards that apply to every margin account, with no $25,000 minimum and no day-trade count. The day trading requirements were replaced by intraday margin standards from June 4, 2026, with firms allowed to phase them in until October 20, 2027 (FINRA, as of Nov 2, 2026). The SEC approved the change in April 2026, and Investor.gov notes that your firm might keep operating under the old rules during the transition or move to the new standard sooner, so the rule that applies to you depends on your firm.
| Old day trading rules | New intraday margin standards | |
|---|---|---|
| Who is covered | Customers making four or more day trades in five business days, if those were more than 6% of their trades, or whom the firm expected to day trade | Every margin account except good faith and portfolio margin accounts |
| Minimum equity | $25,000 at all times | No special minimum; the $2,000 margin minimum still applies |
| How much you can trade | Up to four times the maintenance margin excess at the prior close | Whatever keeps equity above the 25% or house maintenance level throughout the day |
| Falling short | A day trading call with five business days to meet it | An intraday margin deficit to be met as promptly as possible; it lapses after the 15th business day |
| Restriction | 90 days of trading only with cash available | A 90-day block on new loans or short positions if you make a practice of leaving deficits unmet and miss one by the fifth business day |
The new rule is more flexible, but it is not a loosening of the maintenance requirement. FINRA says you must now hold 25% maintenance margin throughout the trading day, not just at the close, and the standard typically covers all activity in the account, including options that expire the same day. Deficits no larger than 5% of your equity or $1,000, whichever is less, do not count toward the pattern that triggers the 90-day block. Firms may block trades in real time that would create a deficit, or calculate deficits at the end of the day and call for margin, so the same trade can be refused at one firm and called at another. FINRA's own summary is that frequent trading with margin remains a high-risk activity.
What are the risks of a margin account?
The main risk is that borrowing can turn a market fall into a loss larger than the money you put in, with forced sales deciding the timing for you.
- Magnified losses. With 50% margin, every 10% fall in the stock costs 20% of the money you put in, and a 50% fall costs all of it.
- Losing more than you deposit. If prices fall past the loan, you owe the difference plus interest.
- Forced sales at the worst moment. Calls tend to arrive after a drop, so the firm sells near the low and the loss becomes permanent.
- Gaps and halts. Overnight news, or trading that resumes after a halt, can move a stock past your call price before you can act; extended-hours trading covers why prices outside the regular session can be far from the last close.
- Rule changes you do not control. House requirements can rise without notice, often on the volatile stocks where calls are most likely.
- Interest drag. The loan costs money every day, whether the position gains or not.
- Concentration. A margin loan on a single stock exposes you to that company's bad day; the stocks overview shows how far individual share prices move.
Margin debt is not a niche product. FINRA member firms reported about $1.48 trillion of debit balances in customers' securities margin accounts at the end of September 2026, up from about $1.18 trillion in October 2025. Types of investment risk puts leverage alongside the other risks a portfolio carries, and SIPC coverage explained explains how a margin loan is netted against your account if a broker itself fails.
Before switching margin on
- Find the firm's house maintenance requirement for each holding, not just FINRA's 25%.
- Work out the call price for each position with the formula above.
- Read the margin rate schedule and how interest is charged and netted.
- Ask whether the firm has moved to the new intraday margin standard yet, and whether it blocks trades or calls for margin.
- Decide how much cash you could deposit within days if a call came, and what you would sell if you could not.